Moody’s: Recent Homeowners Rate Increases Credit Positive For Insurers

NU Online News Service, April 20, 10:51 a.m. EDT

Homeowners rate increases granted to State Farm in Florida and Allstate in Mississippi are credit positive for insurers, as profitability in that line of insurance has been under pressure for the past several years, according to Moody’s.

In its “Weekly Credit Report,” Moody’s notes that personal-lines insurers have experienced earnings volatility over the past several years, mainly due to losses from catastrophes and other weather events. “While the 2009 and 2010 hurricane seasons were quiet, insurers experienced historically high frequency and severity of non-catastrophic weather losses” such as wildfires, lightning storms, tornadoes, hail and winter storms.

In Florida, Moody’s notes that insurers have been hit hard by sinkhole claims, “the most expensive and common non-hurricane claim” in the state. Additionally, although the last two years have been quiet, “hurricanes remain a constant threat” in Florida, Moody’s says.

State Farm’s approval for an 18.8 percent rate increase in the state “allows the company to remain in a market where its non-catastrophe losses increased by 94 percent over the past three years, primarily from increased sinkhole claims,” Moody’s says. The rating agency adds that the approval is also significant because Florida regulators have often resisted rate increases.

The increase is less than the 28 percent increase State Farm had requested, Moody’s points out. The insurer threatened to leave the Florida market in 2009 after regulators rejected a 47 percent rate increase, but the company and regulators worked out a plan that allowed State Farm to implement a lower increase while reducing its in-force policies.

In Mississippi, Allstate was denied a requested 65 percent homeowners rate increase in fall 2009 and a 44 percent increase in spring 2009. But regulators recently approved a 19.4 percent increase that “allows Allstate to continue to write policies in the state while dropping 5,000 policyholders,” Moody’s says. The insurer threatened to drop 18,000 policyholders if it did not get an increase.

Allstate had argued that the rate increase was necessary to offset the high frequency of losses from home fires, burglaries and water damage.